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T.5-Issues related to direct/indirect subsidies:

AGRICULTURE SUBSIDIES
An agricultural subsidy is a government incentive paid to agribusinesses, agricultural organizations
and farms to supplement their income, manage the supply of agricultural commodities, and
influence the cost and supply of such commodities.

Data: Farm subsidies constitute about 2% of India’s GDP.

Total subsidy to farmers amount to 21% percent of their farm income, according to
Ministry of Agriculture and Farmer Welfare.

About 80 per cent of investments in agriculture comes from private sources – mainly
farmers. The share of the corporate sector in total public and private investment in
agriculture has remained meagre, below 0.2 per cent, pointing towards the scope of expansion
available for the corporate sector. The rest of the investment comes from public sources

Agriculture subsidies based on mode of payment

● Direct: Directly paid to the farmer as cash incentives.
➢ Makes their products more competitive in global markets.
➢ Provides farmer with purchasing power.
➢ Help in raising the standard of living of the farmers
➢ Instances of pilferage or corruption reduces
➢ Increases the financial inclusion of rural India.
● Indirect: Provided in kind like cheap inputs (Credit, electricity, fertiliser) assured procurement
at MSP etc, Intermediaries are involved,Leakages,Classic case of “misplaced priorities” ,Mainly
input subsidies:
➢ Fertiliser subsidy: Subsidies provided to make them available to farmers at affordable
cost. Recently government proposed DBT in fertiliser subsidy.
➢ Electricity/power subsidy: Mostly by states, provide cheap electricity.
➢ Irrigation-water subsidy
➢ Cheap credit subsidy: PSL Quota, interest subvention scheme etc.
➢ Loan waivers
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Importance/Need of agricultural subsidy
● Support Farm Income: Farm subsidies provide assured income and increase the purchasing
power of farmers.
● Food Security: The farm subsidies assure adequate food supply and reduce the chances of
food shortage and food inflation.
● Improvement in HDI: Improved farm incomes and food security aids in addressing issues
like malnutrition, improving overall living standard.
● Crop diversification: Incentivising “less focussed” crops where subsidies on the crops having
nutritional and environmental benefits are promoted. For example, boost to millet production.
● Bridge the Income Divide: According to FAO, 70% of Indian rural households rely
mostly on agriculture for a living. Income support for small and marginal farmers bridges
the income gap.
● Technology: Increased usage of technology and better infrastructure in agricultural activities
lead to increased efficiency, increased profitability and reduce distress migration.
● Achieve National Goals: Farm subsidies are crucial levers in the achievement of goals such
as achieving the US$ 5 trillion economy status, Sustainable Development Goals (SDG). For
example, KUSUM programme (subsidy for solar pumps)

Negative impact of subsidies/Issues with subsidies

● Fiscal Burden: Farm subsidies form about 2% of India’s GDP. High amount of farm subsidies,
farm loan waivers put excessive burden on Government finances reducing space for capital
expenditure.
● Energy groundwater Nexus: Water and electricity subsidised (ex: irrigation pumps are
provided)
➢ Unsustainable and unabated usage of these two.
➢ Exploitation of groundwater resources. Ex: Punjab~80-90% blocks declared over
exploited (dark zones)
Solution - Gujarat Model, separate agriculture feeder network from rest => limited electricity
supply, check on exploitation. Promotion of drip irrigation etc
● Subsidised fertilisers: Central govt. provides subsidy
➢ Cheap fertilisers = over used, exported in black to neighbouring countries. (Neem coating
done)
➢ Urea kept out of nutrient-based subsidy regime = indiscriminate usage leads to soil
deterioration, decline in soil fertility.
➢ Actual usage of NPK ratio ~ 8:3:1 while recommended is 4:2:1 at some places
it is 24:8:1.
➢ This additional urea doesn’t give any additional benefit in productivity => degrade soil
➢ Excessive use of fertilisers = more water requirement, water run-off, groundwater
pollution, bioaccumulation, eutrophication and algal bloom = impacting health of the
ecosystem and people
➢ A report in D2E - over use of fertiliser (+ pesticides) in Punjab => cancer capital
of India
● Cropping patterns altered:
➢ Green Revolution => wheat rice grown in water deficient states like Punjab, Haryana
=> over use of groundwater, poor WUE + NUE
➢ Maharashtra = sugarcane is produced due to high FRP, whereas sugar cane is water
intensive crop, majority of state as drought affected => one Drought = failure of crop =
farmers suicide.
➢ Changed cropping pattern = India leading “Virtual water” export country as noted
by economic surveys.
➢ Majority of Indian cropping area is suitable for ‘water efficient’ crops like pulses but
Government policies and MSP regime, pulses grown in lesser area = inflation and import
issues.!
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● Finances: Farmers are entitled to pre-harvest loan at 7% interest rate and are given
some subvention of 3% is paying well in time, however, various Economic surveys post-2014
have noted:
➢ Amount of single loan is increasing for most such subsidised loans => more loans are used
by big farmers.
➢ Extension of such loans is concentrated in last Quarter of financial year => banks are
just fulfilling their PSL target, chances that no timely credit is available to the
farmers.
➢ Most of such distributed loans concentrated at the periphery of urban centres, so, possible
that loans not be given to the real beneficiaries
➢ Money is also diverted to non-agri use. e. Negative attitude of banks towards agri-sector
● Loan waivers:
➢ Of late many states announced loan waivers due to such a schemes even the capable tries
to default.
➢ Creating “moral Hazard”
➢ fiscal burden on government
➢ Creates issues of liquidity in banking system
➢ Money should be used to provide long-term relief to farmers while it does provide relief
but only short-term.
➢ Identification of beneficiaries and corruption related issues have been noted in various
state level loan waivers
➢ Poor Utilisation of public money in agriculture and modernisation of agriculture not
happening.
● Corruption and Leakages: Farm subsidies are susceptible to corruption and leakages. This
leads to welfare loss and additional fiscal burden. Urea meant for farms is diverted to industrial
usage or smuggled to neighbouring countries.
● WTO Concerns: India’s farm subsidies are questioned by the developed nations at the WTO.
MSP is considered trade distortionary and breaches the Aggregate Measures of Support (AMS)
level limited by the WTO norms.

● A clear picture emerges from this that the commodities receiving higher government
support in the form of input and output prices are witnessing a lower rate of
growth in their output. On the other hand, the segments of agriculture not receiving much
government support and intervention are registering much higher growth. underlying reason
for this is that the power of demand side factors in pulling growth is much stronger
than the power of government support in pushing growth
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Why direct subsidies regime is preferable?
● Most of indirect input farm subsidies are siphoned off by big farmers either using
personal nexus with local government employees or through “innovative gameplan” like splitting
their farmlands on paper among various family members or using farm labourers/workers as
proxy
● Cash transfer instead of the indirect fertiliser subsidy will ensure that fertilisers are used
within limit as per requirement of the field and not unsustainable.
● Many Studies have noted that interest subsidies has also discouraged improvement in
production processes of fertilisers since manufacturers with assured profits have no
incentives to increase efficiency, this also leading to quality degradation
● DBT in sector = Stop leakages, black market selling who other countries and other
industries
● Need to support organic compost.
● Need to promote usage of single super phosphate (SSP) which is much more appropriate for small
and marginal farmers but current subsidy system not conducive for its use
● Ahluwalia panel also recommended power ministry to hand out electricity subsidies directly
to farmers instead of paying to power distribution companies as cases of diversion of farm
electricity were noted.
● Shanta Kumar committee recommended for direct subsidies (of ~7000/ha) and to
deregulate all indirect subsidy is as it found huge leakages. - All finances saved from above steps
Can be used to create better agri infrastructure in India.
● PM-Kisan’s welcome feature is that it is a direct income support (DIS) programme. Every
farmer is paid a flat Rs 6,000 per year in three equal instalments, irrespective of which crops she
grows in whatever quantities and sells to whomsoever at any price.it’s a subsidy that is not
market-distorting or privileging chemicals-based agriculture over so-called natural
farming.
● By ending all market-distorting subsidies, whether on farm inputs (fertiliser, electricity
and water) or output (government procurement of grain at high support price beyond necessary
stocking requirements).
● The savings from that can be redirected towards PM-Kisan and state government-financed
DIS scheme
● Consider the Centre’s fertiliser subsidy alone, budgeted at Rs 1,75,100 crore. If this
humongous amount were simply distributed among the projected 8.75 crore PM-Kisan
beneficiaries, it would work out to over Rs 20,000 per farmer.

Way forward
● Rationalisation: According to the demand of programmes based on marketability,
affordability and input cost and according to different income groups.
● Investments: There is a need to invest more in agriculture R&D, build better infrastructure to
create efficient value chains bringing farmer producer organisations (FPO).
● Incentivise Long-term Capital Formation: Kelkar Committee recommended the phased
elimination of subsidies and convert them to capital investments.
● Credit Eligibility Certificates: These certificates would enable landless tenant cultivators to
obtain agricultural credit.
● Technology: Technological improvement like Aadhaar, direct benefit transfer can be used to
eliminate inclusion and exclusion errors. The third party verifications of beneficiary will help in
eliminating the free riders and leakages.
● Legislative Measures: Contract Farming Act, APMC reforms to reduce dependence on the
government.
● International Measures: Under the WTO’s Nairobi package, developed and developing
nations have committed to phase-off export subsidies. Rather than limiting the total agricultural
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value production, subsidies should be limited depending on individual products such as cotton,
wool.
Best practice:
● Andhra Pradesh Community Managed Farming model: It promotes agro-ecological
principles with use of locally-produced, ecologically-sustainable inputs focusing on soil health.
It will make the system more resilient overall

FERTILISER SUBSIDY
The Indian fertilizer industry can broadly be divided into two categories, depending on the
nutrient composition:
● Nitrogenous fertilizers and
● Phosphatic and potassic (P&K) fertilizers.

Demand trends for Fertilizers

● Fertilizer consumption: The overall fertilizer consumption in India has grown at a CAGR of
2.0% from 50.6 million t in FY2009 to 61.4 million t in FY2020.
● Fertilizer subsidy – 0.5% of GDP (2nd highest subsidy, after food subsidy.)
● Only 35% of fertilizer subsidy reaches the intended beneficiaries (NITI Aayog)
● Urea dominates the sector – Of all fertilizers, it is the most produced (85%), the most
consumed (75%) and most imported (>50%).

Need of Fertilizer Subsidies

● Vulnerability in agriculture
● Framing in India is not corporatized and it depends on small and marginal farmers which
requires cheap inputs for farming and it can only be ensured by subsidies
● Reasonable returns to manufacturer.
● Subsidies ensure availability of fertilizers as HYV seeds performs better in the presence of
fertilizers only.
● Fluctuating price of fertilizers could affect the production of food crops in India, which could
affect India's ability to provide food to its population.

Fertilizer Subsidy Mechanism

1. Urea fertilizer:
● Urea is sold at statutorily notified
uniform MRP.
● The difference between the delivered
cost of urea to the farmer and net
market realisation by the urea units
is given as a subsidy to the urea
manufacturer/importer by
the Centre.
2. Nutrient-Based Subsidy (NBS)
Regime
● Farmers buy non-urea
fertilisers at
MRPs below their standard
supply-and-demand-based
market rates or what it costs to
produce/import them.
The Centre foots the difference
as a subsidy.
● The subsidy under NBS goes to fertiliser companies, although its ultimate
beneficiary is the farmer.
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● Since 2018, the subsidy is being paid through a Direct Benefit Transfer (DBT)
system after the actual sale of fertilisers to farmers by retailers
● Point-of-sale (PoS) machine linked to the Department of Fertilisers’ e-
Urvarak DBT portal.
Issues with Fertilizer Subsidy:
● Indiscriminate use of fertilizers (esp. Urea) (NPK) ratio in soil: 4:2:1, for India it’s
8:3:1 due to
● Lack of knowledge among farmers.
● Faulty government subsidy policy favouring excessive Urea use.
● Deregulation of P & K fertilizer prices ➔ High and rising prices of phosphate (90%
import) & potash (100% import) due to rising import prices ➔ cap on subsidies for
P&K fertilizers ➔ low usage by farmers.
● No Denial Policy: Currently anybody can purchase any quantity of fertilizers through the
PoS machines. There is a limit of 100 bags per transaction, but no limit is placed on the
number of transactions. This enhances the diversion of fertilizers towards unintended
beneficiaries.
● Economic Costs: The Central Government spends about Rs 80,000 crore on subsidies
for chemical fertilizers every year. With the increase in subsidy in DAP, the government
will spend an additional Rs 14,775 crore as subsidy in Kharif season.
● Excessive use of fertilizer leading to
● Soil and ground water contamination ➔ low productivity ➔ impact on farmer incomes.
● Eutrophication due to run offs into rivers, lakes etc ➔ threat to biodiversity.
● Massive deficiency of micronutrients, especially zinc.
● Infants who drink water with high levels of nitrate (or eat foods made with nitrate-
contaminated water) may develop the blue baby syndrome.
● Declining usage of organic manure ➔ soil becoming deficient in organic nutrients.
● Urea dominates the sector - It is the most produced (85%), the most consumed (75%) and
most imported (>50%).
● Diversion of subsidy - Extremely low prices of urea also lead to its diversion for non-
agricultural uses as well as smuggling to neighbouring countries ➔ only 35% reaches
intended beneficiaries

Government Schemes:
● Nutrient Based Subsidy Regime
● Soil Health Card: to curb indiscriminate use of urea
o 4Rs approach i.e right quantity, right time, right mode and right type of
fertilizer
● Neem Coating of Urea: to curb diversion of subsidized urea
● Liquid Nano Urea by IFFCO: to reduce quantity of urea (Refer Short Note)
● ES22: We should encourage Nano Urea To protect soil & ⏫fertiliser efficiency
● Pradhan Mantri Bhartiya Janurvarak Pariyojna” (PMBJP) / One Nation One
Fertiliser
● PM PRANAM To reduce the use of chemical fertilisers by incentivising states through
capex grants
● Gas Pooling Policy, 2015: All urea units would get gas at a uniform price. It seeks to
change the industry dynamics in the Urea sector by leveling gas costs for all players.
● Joint venture plants have been set up in some countries with buy-back agreements and
assured off-take agreements for the supply of 10 LMT of rock phosphate and 6.55 LMT of
phosphoric acid
● Strategic partnerships with countries such as Jordan, Saudi Arabia, Oman, India has
secured a supply of 157 LMT (lakh metric tonnes) of various fertilisers
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Suggested Reforms
● Decanalising Urea imports, which would increase the number of importers and allow
greater freedom in import decision ➔ would allow fertiliser supply to respond flexibly and
quickly to changes in demand.
● Bringing urea under the Nutrient Based Subsidy program (NBS) – This would
allow domestic producers to continue receiving fixed subsidies based on the nutritional
content of their fertilizer, while deregulating the market would allow domestic producers to
charge market prices.
● Successful implementation of government measures like 100% Neem-Coating of
Urea, Soil Health Cards, Soil Testing Labs (including mobile labs), Paramparagat Krishi Vikas
Yojana, DBT for subsidy, Nano Urea etc.
● Micro Irrigation saves fertilizer usage by 28% (Dalwai Committee)
● During the last five decades, the usage of chemical fertilizers has increased by
1,100 per cent, whereas the use of farm yard manure has increased by a mere 75
per cent. As a result, organic matter in Indian soils is getting depleted and soil
fatigue is occurring in many places. Promoting the use of organic and bio fertilizers,
compost, farm yard manure and green manuring need to be given top priority in order to
restore and sustain soil fertility.
● Policy Changes to include Liquid fertilizers, bio-fertilizers, farm organic manure.
● Regulatory reforms -Establishment of Fertilizer Development & Regulatory Authority
(FDRA).
● According to Ashok Dalwai Committee report→ The state-level norms for the
optimum mix of NPK are far away from the all India average. Hence, the fertilizer
promotion and policy should be specific to each state-region and there is need
to attain state-specific optimum mix and use of NPK.
● Need to create awareness of the optimal nutrient mix and optimal level of fertiliser use
among farmers. The soil health card can be a good vehicle for accomplishing this objective.
● In the long run, the government needs to augment the agricultural income of
farmers so that they voluntarily give up their subsidies in the future. This would
happen with better implementation of schemes like E-NAM, SAMPADA, PM Fasal Bima
Yojana, etc.

Organic farming vs Agro Chemicals:

The yields under organic farming were on average 25 per cent lower than the
conventional ones, reaching a yield gap of 30 per cent for cereals. The intensity of soil use
was also lower in organic systems. Combining the yield gap with the reduction in the number of crops
harvested in rotation, a productivity gap of 29 per cent to 44 per cent was estimated
depending on the type of crops included in the rotation.
The food and economic crisis in Sri Lanka caused by the ban
on synthetic fertilizer and agro chemicals in 2021 underscores the need for adopting a
cautious approach in curbing the use of agro chemicals.

The Prime minister gave a clarion call to farmers to cut urea consumption by half by 2022. We
Diversify our product portfolio and produce more NPK complexes, which offer not only a wider
range of products to farmers but also ensure balanced nutrition
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Recent Initiative:
● In India, the network of input services is fragmented → separate dealer networks for seeds,
fertilisers, pesticides and implements and facilities for testing of soil, seeds, fertilisers and information on
different schemes reach farmers through different agencies .
● Transforming the existing fertiliser retail shops into Pradhan Mantri Kisan
Samriddhi Kendra (PMKSK), a one-stop shop solution, has come up as a sustainable and
long-term solution to cater to the needs of the farmers.
● Around 2,80,000 active retail fertiliser shops are undergoing a phased conversion
into comprehensive one-stop shops.
● PMKSK focuses on offering a diverse range of
● agri-inputs, including fertilisers, seeds, and pesticides
● small farm machinery to the farmers, including drone services, pesticides in
a hassle-free manner.
● A vital aspect is the provision of soil and seed testing facilities
● They promotes precision agriculture and resource-efficient farming practices. serve as
a knowledge hub, disseminating crucial information on crops and government welfare schemes.
Bridging the information gap.

Short Note on Nano Urea:

● Patented by IFFCO
● It was permitted by Fertilizer control order 1985
● Chemically, packaged urea is 46% nitrogen Nano Urea sold in 500
ml bottles has only 4% nitrogen
● Size will be 20-25 nm.
● It enhances the availability of nitrogen to the crop by more than
80%
● It will enter through stomata and other opening, conventional urea
enters through roots
● Assimilation by plant cells and then distributed through phloem
● Unused nitrogen will be stored in vacuoles
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WTO & Farm Subsidies:
Agreement on Agriculture:
● WTO’s agreement on agriculture was concluded in 1994, and was aimed to remove trade
barriers and to promote transparent market access and integration of global
markets.
● Subsidies regime included in the AoA has three forms of subsidies, ranging from those that were
considered “non-distorting” or “minimally distorting” (the “Green Box” and “Blue
Box” subsidies), to those that seriously “distorted” markets (the “Amber Box”
subsidies).
Amber Box: Blue box: Green Box:
▪ Amber box subsidies are those that can ▪ It is the “amber box ▪ Green Box is domestic
distort international trade by with conditions” — support measures that
making a country's products conditions, designed to don’t cause trade
cheaper in comparison to those of reduce distortion. distortion or at most
other countries. ▪ Any support that would cause minimal distortion.
o Examples: Subsidies for inputs such normally be in the ▪ The Green box subsidies
as fertilisers, seeds, electricity, amber box is placed in are government funded
irrigation, and Minimum Support the blue box if it without any price support
Price (MSP). requires farmers to to crops.
o As a result, the trade agreement limit production. o They also include
requires signatories to commit to o These subsidies aim to environmental protection and
reducing trade-distorting limit production by regional development
domestic supports that fall into the imposing production programmes.
amber box. quotas or requiring ▪ “Green box” subsidies are
▪ Members who do not make these farmers to set aside therefore allowed without
commitments must keep their amber part of their land. limits (except in certain
box support within 5-10% of their value ▪ At present there circumstances).
of production. (Di Minimus Clause) are no limits on
o 10% for developing countries spending on blue
o 5% for developed countries box subsidies.

Need to Relook into Subsidy Norms:

● Unequal Opportunities to Global South:
➢ Ever since the establishment of WTO, there has been a complaint regarding the export
of agricultural goods, and in general, the viewpoints of the Global South and
emerging markets have not been given equal weight as those of the developed
nations in trade discussions.
● Issues with Food Subsidy Limit: There is an issue with the reference price adopted
under global trade norms - a WTO member country’s food subsidy bill should not breach
the limit of 10% of the value of production based on the reference price of 1986-88.
➢ Subsidies for agriculture and poor farmers in developing countries were not counted at all
and were frozen by the WTO.
➢ Food security is comparatively stronger in developed nations than in developing
countries because of the unbalanced nature of trade agreements.
● Rising Food Insecurity: The challenges on food security posed by the Covid-
19 pandemic and Russia-Ukraine conflict have once again emphasized to relook the subsidy
norms as food and fertilizer security have become more important now.
● India’s Demand: As part of permanent solution, India has asked for measures like
amendments in the formula to calculate the food subsidy cap and inclusion of programmes
implemented after 2013 under the ambit of ‘Peace Clause’.
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T.5.1-Issues related to MSP:

MINIMUM SUPPORT PRICE (MSP)

MSP is a form of market intervention by Central Government to insure agricultural producers
against any sharp fall in farm prices, by guaranteeing minimum prices for their produce.
MSP is announced by the Government at the beginning of the sowing season for certain crops on the
basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP).

Determinants of MSP: While recommending prices, Commission for Agricultural Costs and
Prices take into account important factors, viz.
● Cost of production
● Changes in input prices
● Input/Output price parity
● Trends in market price
● Inter-crop price parity
● Demand and supply situation
● Effect on industrial cost structure
● Effect on general price level
● Effect on cost of living
● International market price situation
● Parity between prices paid and prices received by farmers (terms of trade)

Calculation of MSP
● The Union Budget for 2018-19 had announced that MSP would be kept at levels of one and
half times of the cost of production. MSP recommendation was based on 1.5 times the A2+FL
costs. However, it does not take into account C2 cost.
● A2: It covers all paid-out costs directly incurred by the farmer in cash and kind on seeds,
fertilisers, pesticides, hired labour, leased-in land, fuel, irrigation, etc.
● A2+FL: It includes A2 plus an imputed value of unpaid family labour.
● C2: It is a more comprehensive cost that factors in rentals and interest forgone on owned land
and fixed capital assets, on top of A2+FL.
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Benefits of MSP
1. For farmers:
● Safety net: MSP is a safety net given to the farmers to ensure guaranteed prices and assured
markets.
● Saves from price fluctuations
● MSP is fixed to encourage higher investments and production of crops.
● Free power, and fertilizer subsidy together with MSP resulted in higher income per unit
area from wheat and paddy cultivation.
● MSP has been extended to around 23 crops at the present. This will encourage the farmers
to grow these diverse crops to maximise their income.
● It helps in enhancing the purchasing capacity of farmers.
2. For economy
● Self-sufficiency: At the launch of the Green Revolution, MSP was designed to assist the
country in achieving its goal of food self-sufficiency.
● Raw material: To provide raw material to different industries at reasonable prices in the
whole country.
● MSP is a leading factor influencing the output prices of the farm produce in the entire
country [RBI's annual report of 2017-18].
● Creates additional demand
● Targeted crops: MSP is used as a tool to incentivize production of specific food crops
that are short in supply.

Pradhan Mantri Annadata Aay Sanrakshan Abhiyan

The Government has approved a new umbrella scheme “Pradhan Mantri Annadata Aay Sanrakshan
Abhiyan” (PM-AASHA) which will provide Minimum Support Price (MSP) assurance to farmers.
● The Scheme is aimed at ensuring remunerative prices to the farmers for their produce
as announced in the Union Budget for 2018.
● The increase in MSP can improve farmer’s income by strengthening procurement mechanism
in coordination with the State Governments.

Components of PM-AASHA:
1. Price Support Scheme (PSS)
● Under the PSS, Central nodal agencies will procure pulses, oilseeds and copra with
proactive role of state governments.
● The Food corporation of India (FCI) and the National Agricultural Cooperative Marketing
Federation of India (NAFED) will help implement the scheme.
● The procurement expenditure and losses due to procurement will be borne by Central
Government as per norms.
● The government will procure 25% of the marketable surplus of farmers for eligible crops.
● The Centre has made a provision of about Rs 16,000 crores to be provided as bank guarantee
for the agencies to procure from farmers.
2. Price Deficiency Payment Scheme (PDPS)
● Under the PDPS, the state will provide the difference between the prices prevailing in mandis
and the MSP.
● All oil-seeds are to be covered under PDPS.
● This scheme is modelled on the Bhawantar Bhugtan Yojana that has been implemented
by the Madhya Pradesh state government as well as Bhavantar Bharpai Yojana of
Haryana Government.
● There will be no physical procurement of crops.
3. Pilot of Private Procurement & Stockist Scheme (PPPS)
● In lieu of PSS and PDPS, in certain pilot districts the PPPS will be tried out.
● Private agencies will procure oilseeds in coordination with the government.
● The selected private agency shall procure the commodity at MSP in the notified markets
during the notified period from the registered farmers in consonance with the PPSS
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Guidelines, whenever the prices in the market fall below the notified MSP and whenever
authorized by the state/UT government.

Issues with MSP

● Restricted to a few crops - While the Government announces MSP for about 24 crops, the
official procurement at the MSP is disproportionately focused on wheat, rice and
sugarcane, which has led to.
o Imbalanced cropping pattern at the expense of other crops such as pulses, oilseed &
coarse grains.
o Depletion of water resources, soil degradation and persistence of monocultures due to
focus on input intensive crops (wheat, rice & sugarcane)
o Distortion of rational/sustainable farm practices as farmers tend to grow more
remunerative wheat and rice, irrespective of their agro climatic suitability
● Regional imbalance public procurement mainly confined to few states (eg.
Punjab, Haryana, Maharashtra, U.P., A.P etc.) and very few farmers impact inclusive growth
● Fueling inflation
o Poor price realization in market + Rising MSPs + open ended procurement by FCI → Increase
in buffer stocks of foodgrains above the required norms & decrease in the supply in the open
market.
o MSP forms a 'floor' for market prices of crops. A persistent increase in MSP pushes up
prices in the market, adversely impacting consumers, including farmers.
o MSP's exclusive focus on a few crops reduces the supply of other foodgrains (eg. pulses,
oilseeds etc), thereby inducing inflation.
● Impact on Fiscal Marksmanship - Rapidly expanding food subsidy bill due to rising
MSP, foodgrain storage, handling & carrying costs, thus, exerting pressure on fiscal deficit.
● Lack of awareness among farmers - Even for paddy and wheat, where active
procurement occurs, less than 50% farmers report awareness of MSP. Niti Aayog report =
only ~10% are aware of MSP before sowing, so the utility of the scheme is
limited.
● Pulse economy of India disturb leading to huge imports of pulses also shoes
export of virtual water. Poor WUE + NUE
● MSP does not consider environmental costs like depletion of water resources,
soil degradation etc.
● Less produce sold at MSP: Only 6% of farmers in India actually succeed in selling their
crops at MSP [2015 Shanta Kumar Committee report].
Way forward
● Timing of MSP announcement: MSP should be announced well in advance of sowing season
so as to enable the farmers to plan their cropping [Niti Aayog].
● The best option is to reform the MSP to make it more decentralised and within
the reach of the farming community. In reality, the subsidies incurred to store and
transport over long distances add to the costs with deteriorating nutritional quality
● Procurement centres: Small and marginal farmers can be provided with Procurement
Centres in village itself to avoid transportation costs [Niti Aayog].
● Awareness among the farmers on MSP needs to be increased.
● There should be meaningful consultations with the State Government, both on the
methodology of computation of MSP.
● To solve the problem of MSP, Both NITI and Economic Survey recommend Price
Deficiency Payment (PDP) in which the government pays the farmers the difference
between modal rate (the average prices in major mandis) and the MSPs. Some states like
Madhya Pradesh (Bhavantar Bhugtan Yojana), Haryana government (Bhavantar Bharpai
Yojana) have launched price deficit financing schemes.
Astra 2024 [Agri]
● Market Intervention Scheme [MIS]: A counterpart of the MSP is the MIS under which state
government procures perishable commodities like vegetable items.
● By moving from price to income support, all market-distorting input and output
subsidies can be collapsed into the Pradhan Mantri Kisan Samman Nidhi or PM-
KISAN scheme.
● The government’s focus needs to be directed towards:
➢ The development of efficient value chains
➢ Forming of commodity-specific Farmer Producer Organisations (FPOs)
➢ Equipping them to assay, grade, and package their products
➢ Incentivise the private sector to invest in logistics, storage, cold chain, processing.

Case Study:
The Deccan Development Society based in Telangana's Medak district has already
tried to implement a decentralised PDS system. It collected locally-grown food crops of
different millets in semi-arid, rainfed regions. This not only achieved nutritional but also fodder and
firewood security that is based on zero emission, while addressing the issue of climate change and
conserving biodiversity.